Every accountant will tell you the same thing: always keep your business and personal expenses separate. Also, each small business owner or one-person operation will nod her head and agree wholeheartedly. Meanwhile, back to business as usual. It can be hard to do. As sensible and logical as it sounds, and as highly recommended as it is, it is not easy for the entrepreneur to carry out. They often have a very rough and tumble life in the marketplace. It can be difficult deciding where your personal day ends and your business life starts. Moreover, when cash is hard to come by, it makes sense to rob Peter to pay Paul and vice versa. However, there are consequences to this mingling of moneys. The tax people do not like it. Your accountant gets mad. Your business suffers. Keep them happy and your business prospering. Here are five ways to ensure that your business money stays separate from your personal money. Best Practices
  1. Keep two bank accounts: a business account and a personal account. This is the basic way you can make sure the money from your life does not get mixed up with your business operations. If you put money into the correct account and take it out of the proper account, you are home free. One of the first things the IRS looks for is a separate business checking account.
  2. Have two sets of financial record keeping, one for business, and one for personal. Most small businesses use a system like Quicken, Microsoft Money, or QuickBooks for their accounting. So do many households. Be sure that you keep the record keeping entirely separate. This is essential for tax reporting purposes and also improves your financial organization. If you do not know where the money is going in your business, you cannot tell if you are making a profit. With a complete record from your financial reporting system, everything is in one place, listed by date and category. It makes filling out tax forms easy. If you leave the separating out of expenses, from personal to business, until March or April, you stand a good chance of making mistakes. It also requires major amounts of time that could better be spent running your business.
  3. Get a business credit card. Small companies and one-person operations often have trouble qualifying for a business credit card, but keep trying. It is a help for record keeping, gives you proof of expenses when the IRS comes calling, and also builds your business credit history. You can also get a deduction on your taxes with a business credit card from any interest charges.
  4. Incorporate. This is the complete way to ensure that your personal and business expenses do not mingle. As a separate legal entity, your business will have its documented life. Two of the most popular and useful incorporation structures for a small business are the LLC and the S corporation. It is best not to do this as a do-it-yourself project. Get a team composed of lawyer, accountant and financial planner to help you decide which form makes the most sense for you business needs.
  5. Pay yourself a salary. This is easy if you have incorporated, but is advisable even if you are a sole proprietorship. Pay yourself a wage. Don’t go over that amount with your personal expenses. Exceeding it just encourages you to dip into business funds to pay your current grocery or rent bills. When tax season rolls around, each of these five practices will make filling out forms easy and headache-free. Your company’s finances will be well-organized, enabling you to have a clear view of how it is doing, where the weak spots are, and where it is excelling.

    6. Keeping Your Business & Personal Finances Separate

    View Resource Keeping Your Business & Personal Finances Separate
    Cash flow is the lifeblood of most businesses. In the ideal world, it circulates smoothly. Customers pay their bills regularly which builds positive cash balances in your books. This cash is the money used to pay your suppliers, employees, and to fund your growth. That in turn, keeps your customers buying and paying. However, there are many twists and turns with the cash flow process. That is why it is important to know how to utilize it best to keep your business solvent and thriving. Basics of Cash Flow and Definitions It is helpful to understand the terms used when accountants, bankers, and business owners talk about the cash flow process. Comparison of Cash Flow to Profit Profit is different from cash flow. You may realize a healthy profit at year end, yet face an unhealthy cash flow at various times of the year. Understanding your business finances is not as simple as just looking at a profit and loss statement. Fundamentally, profit is simply your revenues minus your expenses. However, cash flow depends on a broad range of factors including: In essence, profit refers to income and expenses at a point in time. It is static in this regard. On the other hand, cash flow is dynamic. It involves the timing of the movement of money in and out of the business. Tips to Improve Cash Flow A healthy cash flow is an integral part of any successful business. Implement these suggestions as applicable to help you manage and improve the cash flow of your business. Remember, cash flow is the heartbeat of any business, large or small. Monitor it regularly, and do what it takes to keep a smooth flow of money circulating through your company.

    Managing Cash Flow

    View Resource Managing Cash Flow
    Developing and managing budgets can be a tiresome task for both individuals and companies. Without them, however, you do not know how your business is doing. Nor are you able to optimally plan for your business’s future. If you are budgeting by memory rather than pencil and paper, or worrying about payroll from week to week, you may be putting your company in danger. Budgets are a living, breathing part of a successful business if you plan them precisely and revisit them frequently. Use them as a map for the future, as well as a financial journal describing in detail where you have been. Budget Components There are three essential components of any budget:
    1. Sales and other revenues

    2. Total costs and expenses

    3. Profits
    Here’s a look at each in more detail.
    1. Sales and other revenues
      The more accurate you are with your revenue estimates, the easier your next year’s finances will be. Be conservative as you check over last year’s revenue, evaluate the current economy and the situation of your business.
      If you are a startup, look at the financial health and growth of others in your industry, use your experience, and conduct market research. If you are an established business, use the prior year as a base but adjust for current projections and marketplace conditions.

    2. Total costs and expenses
      Next, calculate your total costs of doing business, which includes identifying fixed, variable, and semi-variable expenses.
      Fixed: This includes fixed costs, such as rent, leased items like electronics, heavy equipment, furniture, and insurance.
      Variable costs: These expenses change based on sales. These include raw materials for manufacturing, freight costs and inventory.
      Semi-variable: Salaries, advertising, and telecommunications are typical examples.

    3. Profits
      This is why you are in business. Use either of these two formulas to determine if you made a profit:
      Sales = total cost + profit
      Sales – total cost = profit
      If you are a startup, benchmark your profit levels against others in your industry by checking with peers in your field and conducting market research.
      Without a good handle on what your profits will be from year to year, it will be next to impossible to plan for future years. New equipment purchases, a move to a larger location, and the raises and bonuses due your employees will all be dependent on understanding the profit position of your company.
    Budget Outlines The goal of identifying a budget outline is twofold. It helps you to find and organize information. A framework that is appropriate for your business will enable you to develop a budget with precise costs and income. Use the same outline from year to year to understand your prior years and help you plan for the next ones. Incorporate these tips when preparing the budget outline for your business. Budgeting Basics and Best Practices There are a number of budgeting best practices you should follow: Every company needs to spend time developing and updating their budget throughout the year. Your investors and lenders will want to review it if you are looking for an infusion of capital. Your budget helps you to manage cash flow and keep up with payments to employees, vendors, and suppliers. Most importantly, it can help you plan — and realize — future growth and profits.

    The Basics of Budgeting

    View Resource The Basics of Budgeting
    It is a truism for consumers and startups: it is much easier to get credit when you do not need it. Having access to extra money at critical times can be what keeps you afloat in the difficult early days of your startup. That is why it makes sense to find out how to establish credit for your new business and how to keep it strong. Steps To Establishing Your Credit Worthiness Businesses and consumers both need to look like excellent credit risks to banks, credit unions, credit reporting agencies, and credit card companies if they want to establish and keep their credit. Here is a look at four steps to take towards building a creditworthy reputation.
    1. Keep an eye on you own credit rating, as well as the one for your business. Many banks look at a businessperson’s credit rating first. If it is in the mid-600s or higher, you are considered a good risk. One of the best ways to keep that rating high is to have a low ratio of debt to credit on your credit cards and any credit lines you have available. Keep balances less than 30% of your credit card limit. Inquire about the personal credit rating of investors you are considering for your business. Lenders will likely look at those too.

    2. Get credit before you are desperate. Apply for any credit, even small amounts, as soon as you get into business. Most startups need a two-year track record before a bank will lend a substantial sum. However, smaller amounts, in the form of a business credit card, credit line from a credit union, or small bank loan, are entirely feasible early in the life of your business.

    3. Use your credit regularly and wisely. Your goal is to build an admirable credit history. You can accomplish that by using your credit often and paying it off quickly. In addition, even if you need to pay a fee, look into setting up a Dun & Bradstreet profile.

    4. Do business with one lender. Business and money are all about relationships. Get to know the lenders and managers at your bank and credit union. Keep them in the loop. Let them get a chance to see you in action and watch you new company grow.
    Identify Lenders and Sources Banks and credit unions are the most prominent places to get credit. Don’t automatically apply to the closest one. Look for one with a reputation for being friendly to small businesses. Ask other startups where they obtain credit. If a creditor gives credit to one startup, there is a good chance it will give it to you. Ask other startups about which credit cards are the easiest to get. Apply for a business card as soon as possible. Don’t worry about the limit, the goal is simply to get the card. Use it often and pay off the balance in full each month. Unique and Creative Ways To Get Credit Don’t let a turndown from one lender stop your efforts to get credit for your startup. There are many ways available. Using alternative credit sources does not harm your chances of eventually getting credit from a bank or credit union. In fact, it can improve it when they see you handle your money well and pay back balances on time. Here is a short list of other sources of credit. It pays to spend time working on your personal and business credit. Having strong business credit can position your startup more favorably for payment terms with suppliers and vendors, and let you enjoy better interest rates and terms from banks, credit unions, and other lenders. Remember, once you have established good personal and business credit, be sure to monitor and safeguard it.

    Establishing Credit

    View Resource Establishing Credit
    Keeping track of the money in your business is essential if you want to prosper. However, most small business owners have skills or a specialty that inspired them to start a company—and it was not number crunching. Understanding finances and basic accounting is a critical skill, as important as making and marketing your product. To stay informed on your business finances without the help of an accountant or financial planner, you need a solid grounding in basic accounting statements. Here is an overview of the four most important. Balance Sheet The point of the balance sheet is to provide a detailed look at your business financial situation on a given date. It is made up of three main components: assets, liabilities, and equity. Assets There are two primary categories of assets. The first are called current or liquid assets. These all have the ability to be easily and quickly converted to cash. These are typically cash, marketable securities, accounts receivable, inventory, notes receivable, and items like prepaid insurance. The second type are called fixed assets, like land, equipment, and buildings. Fixed assets get listed on your books at their historical cost, which is often less than what you could sell them for on the market. Liabilities Liabilities are what the business owes others, your creditors. There are also two types of these. Current liabilities, also called short-term, include the wages you owe, accounts payable, notes payable, and interest payable. Long-term liabilities are debt that are due in more than a year from the balance sheet date. These include items such as your mortgage or bonds payable. Equity Equity is what the business owes its owners. After the assets are used to pay all your creditors and outstanding liabilities, what remains belongs to you. A simple formula is: Equity = Assets – Liabilities Income Statement Often called the Profit and Loss or P&L, this gives a look at your company in terms of net profit or loss for a particular period. The two parts are: Income: what you earned, such as revenue from sales or income from dividends. Expenses: what your business paid out for items such as wages, rent and other costs of doing business. Depreciation expenses are also included here, which are typically accounting adjustments to asset values. The simple formula for this is: Income – Expenses = Net Profit Statement of Owner’s Equity Also called a Statement of Retained Earnings, this accountant report lists in detail the change or movement of an owner’s equity over a given period. It has five parts:
    1. Net profit or loss, which gets reported in the income statement
    2. Share capital, which is the portion of a company’s equity that has been obtained by trading stock for shareholder cash
    3. Dividend payments
    4. Gains and losses in equity
    5. Results attributable to a change in accounting policy or a correction of a previous accounting error
    Cash Flow Statement The Cash Flow Statement documents the changes and movement of your cash and bank balances during a specified period. It has three parts: Operating activities: these include the flow of cash from the main activities of your business Investing activities: these include cash flow involved in the sale and buying of assets unrelated to inventory. An example would be buying a new factory. Financing activities: these include money made or spent on raising share capital, issuing or repaying debt, as well as paying interest and dividends All four financial statements are closely inter-related. While the intricacies may be confusing, a fundamental understanding of the essential accounting statements and the information included in them is beneficial for the small businessperson to master. Making a skilled accountant part of your team is the best way to stay on top of the arcane, confusing world of numbers that tell the story of how your company is doing.

    Basic Accounting Statements

    View Resource Basic Accounting Statements
    Small Business Administration loans are among the most common ways to fund a startup. Though you still need to prove you are a good risk, these loans are often easier to qualify for than standard bank loans. The Small Business Administration, also known as the SBA, doesn’t lend you the money. Instead, it guarantees a percentage of the loan amount, which makes it more likely a bank, community development organization, or micro-lending institution will approve a loan for your business. There are several benefits of an SBA loan, including: Types of Loans Available The SBA has several types of loans available. The most popular are: Qualifications for Loans Many owners of a small business in trouble think these loans will bail them out. That is not true. You still need to have good credit, personal assets, a business plan, and proof that you are a going concern. This is not a program for companies that are failing. The qualifications you need to meet to get an SBA loan are as follows: Applying for Loans These loans require much documentation. These include statements for: The lender will ask a number of questions about your business to see if he thinks you are a good risk. These might include: The SBA is not a lender of last resort if you are teetering on bankruptcy, but it can lend a substantial financial hand if you need money for growth and to get over a slowdown. If you meet the standard requirements, this is an excellent way to get a low-interest loan with affordable monthly payments. For additional information on Small Business Administration loans, visit the SBA Loan Program website.

    Small Business Administration Loans

    View Resource Small Business Administration Loans

    You need an efficient way to get paid for your product or service in order to stay in business. Cash, checks, credit cards, and online payments are the primary ways to get paid.

    Here is a look at how to set up a professional, easy-to-use payment system for your business.

    Setting Up Your Business to Receive Payments

    There are three important steps for setting up your payment system.

    1. Obtain a business bank account. If you are a single-person business owner, it might seem easier to use your personal bank account and keep track of business income and expenses by listing the business payments and withdrawals separately. This is not a good idea. You can get into trouble when your personal bank account doubles as a business account for these reasons:



      • Mingling the accounts makes it hard to figure out your taxes.
      • It makes it more challenging to determine if you are making a profit.
      • It is hard to set aside money for business expensed and expansion because it is so tempting to spend your company money on personal needs and bills.


    2. Request a Tax ID number. Taxes are a universal part of the business experience. To get started, you need to request a tax ID number from the IRS by completing IRS Form SS-4, which you can get online without charge. With this in hand, get a state tax ID number. You can find the right website by visiting the Tax, Accounting, and Payroll Sites Directory and clicking on State and Local Tax.


    3. Apply for a fictitious name. You need this if you do business under any name other than your personal name. Register it locally and at the state level.

    If your business only accepts cash and checks, this is all you need to do. However, with so many business transactions being done now with credit and debit cards, or other online payment methods, you should consider setting up a merchant account and an online payment system too.

    Both make it convenient for consumers to buy. They also provide the added benefit of getting customers to make impulse purchases. By accepting payments via credit or debit cards, you make it easy to accept payment whether your customer is local or on the other side of the world.

    Accepting Credit Card Payments

    To make use of credit and debit cards, you need to set up a merchant account. This allows you to accept Visa, MasterCard, American Express, Discover, and other types of cards.

    The merchant account service provider is a middleman between your business and your customer. The merchant account service provider will process payments, debit the money from the customer’s card, and deposit it into your business account. The equipment you need varies.

    Merchant account service providers provide these main types of accounts:

    Other Payment Options

    Here are two more ways to accept money that are becoming more prevalent.

    The more ways you can accept payment, the easier you make it for customers to do business with you. In the age of the Internet, it is not uncommon for freelancers and small merchants to conduct business globally. Be open to new ways of accepting payment to make your business and services accessible to the largest number of consumers.

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    Accepting Payment

    View Resource Accepting Payment
    Making sure you have enough working capital to handle payroll and stay current with your suppliers is a never-ending challenge for many types of businesses. Exploring alternative ways of financing, outside the traditional bank loan, can provide the needed funds. One type of financing that has a long and respected history is factoring. Here is an overview of who they are, what they do, and the pros and cons of using this method of financing. What Is a Factor? In a nutshell, “factoring” is selling your accounts receivable to a third party, called a factor. The factor provides you with money upfront, then collects the amounts due on the invoices directly from your customers. The factor deducts his fee and forwards any remaining funds to you after the client pays him. This is not a loan. You are using the money owed to you as the basis of the funding. The factor typically pays you 75 to 80% of the worth of your receivables and charges a fee of 2 to 6%. Factoring has been around for centuries. In ancient times, traders in Mesopotamia used factoring to fund their shiploads of goods around the Mediterranean and in the Middle East. From the 14th Century, English clothing merchants relied on factoring to stay in business. It was an integral part of developing trade with the New World in the 1600s and beyond. In the U.S., it has been a mainstay of the textile and automobile industries. In the 1970s, higher interest rates encouraged use of factors. In the 1990s, financial giants like GE Capital and GMAC entered the field. In earlier decades, this was a service used principally by big corporations. Since the Internet has made the process easier, many small to mid-size business are using it. Benefits and Drawbacks of Using a Factor There are several benefits of using factoring to get money quickly. Here is a look at three.
    1. Your credit score isn’t an issue. The factor is concerned about your customers’ ability to pay since that is where they collect their money. If your customers are deemed creditworthy, a factor will work with you even if you don’t meet the requirements for a bank loan.

    2. It’s not a loan. This means your assets aren’t at risk, and you don’t have to worry about collateral.

    3. Factors provide a range of useful services beyond funding. The factoring company performs the accounting work needed to collect your accounts receivable. They conduct credit checks for new customers and provide professional financial reports, so you know exactly where you stand.
    However, there are downsides. Here are two of them.
    1. This is a short-term solution. As a rule, most businesses use factoring in their financial strategy for two years or less. Factoring your accounts receivables can be useful as a source of quick cash to add to your working capital without having to increase your debt. However, it is not meant for the long-term.

    2. It is more expensive than a bank loan.The fees charged by the factor are higher than most bank loans. However, if you don’t qualify for a loan, this is a moot point.
    A money crunch can happen in any business. It might be due to unexpected expenses, a rapid growth cycle or the desire to take advantage of a one-time opportunity. If you have receivables, you can put that to work by using a factor as a funding source. For more information on factoring or to search for a factor, visit the International Factoring Association (IFA) website. The IFA is an organization that provides resources for the factoring community.

    Working with Factors

    View Resource Working with Factors
    These days, small businesses are under more pressure to prove ROI or return on investment of their marketing budgets. That means marketers have to track performance through more than site visits, page hits and unique visitors. Although these types of metrics are fairly simple to track and report, they do not show the overall marketing contribution in the sales funnel process. Regardless of how you are estimating value, you want it to stay as simple as possible. Ultimately, there are four things you are trying to understand: Understanding the Sales Funnel To derive a strategy to fit your marketing budget, you first need to understand the concept of the sales funnel. According to Hal Shelton, SCORE board member, business executive, and the author of ‘The Secrets of Writing a Successful Business Plan’, an example of a sales funnel cycle looks like this:
    1. Awareness. Prospects become aware of your business; however, they are not sure yet if your services or products are what they are looking for.

    2. Discovery. This is the stage where consumers are researching your company.

    3. Engagement. This is where prospects begin to take some form of action which could lead to a sale. At this stage, you should be trying to get some type of contact information from them.

    4. Active Customer. This is where the prospect has made a purchase from you and became an actual customer.

    5. Successful Customer. The customer is satisfied, loyal and regular.

    6. Referrals. The customer is willing to share testimonials and refer others to your business.
    Knowing this cycle, you can then move on to coming up with a marketing strategy and measuring ROI. Measuring Brand Impact Brand lift is essential here. It’s the measurement of how consumers think about you in terms of your marketing strategy and goals. It measures how effectively you are building the relationship you want with consumers. Take, for instance, data obtained through a BuzzFeed case study. You might have noticed Sponsored Posts from Virgin Mobile if you are a regular reader of BuzzFeed. In this study, BuzzFeed provided a one-question survey in order to measure brand impact of Virgin Mobile and what type of impact content had on readers. This study involved two control groups; one which was exposed to Virgin Mobile content and one that was not. The control group that was exposed had seen almost 9 pieces of content from Virgin Mobile. Remarkably, that control group was almost 390 percent more likely to be on agreement that the “Virgin Mobile brand understands me as well as the things I like.” This would provide Virgin Mobile with a huge ROI, assuming their goal was in demonstrating an increase in brand impact. Measuring Engagement There are various reasons why repeat visitors are essential. First, repeat visitors are a clear indication that you have built a solid relationship with them. Second, repeated exposure to your marketing message will increase brand lift greatly. Although brand lift is good for measuring how your content is affecting your reader’s perceptions, it is not telling you which particular content is engaging your consumers. Direct measurement can be used for this which can be considered ‘engaged time’. This tracks the engagement on page content such as clicking, scrolling, highlighting, and so forth. Measuring Conversions Now that people are aware of your brand and they trust you, how do you know if they are choosing you due to your content or marketing activities? For this, you need to track and measure the path between your content channels and your conversions. Remember, successful marketing is about providing valuable content and messaging and building relationships through this engagement. Marketing ROI measures the effectiveness of these relationships. Conversions are just a part of the whole relationship wheel that continues to spin. In order to have interacting parts of metrics, engagement, brand impact, repeat visitors and conversions need to be tracked and measured. Putting it All Together Now that you know the sales funnel and the importance of measuring brand impact and engagement, next is gathering up all the data needed to use it to make better decisions. Most small businesses collect data and manage it through multiple databases, establishing systems for each department. To run things more efficiently, you should work closer with your IT and sales department to come up with a closed-loop process for your automated marketing platform. Integrated systems like this will give you timely feedback from your sales department on your various activities’ impact on driving revenue. In the past, it was easy just to base your marketing strategy off of what ‘just feels right’. These days, however, gathering, tracking and measuring ROI data is essential. Successful small business owners know the importance of using this data for making decisions and justifying budget requests.

    Measuring the ROI of Your Marketing Budget

    View Resource Measuring the ROI of Your Marketing Budget
    A widely recognized concept in marketing circles is customer lifetime value (CLV); however, not many business people without a marketing background understand what it is exactly or how to measure it properly. Customer lifetime value is the forecasting of net profits that connect to a specific customer during their lifetime relationship with a business. To state it more simply, CLV is the financial value of a customer relationship over the lifetime of your relationship with that customer. Why It is Important Customer lifetime value is important because it gives you an idea of the amount of repeat business you might be able to expect from a specific customer. This knowledge will assist you in deciding how much you can profitably invest in ‘buying’ this particular customer for your business. Once you determine how much a customer buys and the frequency of their purchases, you will have a better understanding of how to manage your limited resources. Choosing between projects like customer retention programs or other services that you will need for keeping satisfied customers will be easier with the right knowledge. How to Calculate CLV The formula for calculating CLV is quite simple. It is the total gross profit of a customer over the lifetime of the relationship LESS marketing, advertising, and incremental service or product fulfillment costs. This EQUALS the customer lifetime value. Here’s a good example: Take a gym member who is spending $40 on a monthly basis for three years. The calculation for the CLV would be $40 x 36 months = $1,440 in total revenue (or $480 a year). Thinking hypothetically, you can see why so many gyms, to drive traffic, offer new members free starter memberships. They know that if they are spending less than $480 for bringing in a new member, that member will eventually turn out to be profitable. Running Your Business to Optimize CLV It is helpful to think of CLV as a “catch and keep” strategy, rather than a “catch and release” tactic. Below are only a few advantages that you will have by understanding fully and leveraging customer lifetime value. These include: Ultimately, it is difficult to run a thriving business if you do not invest in bringing in new customers and satisfying the ones you already have. By understanding customer lifetime value, you will realize that you miss investing in your creative marketing strategy. Companies that understand customer lifetime value, and act upon this knowledge, will gain a competitive advantage in the marketplace. Overall, a diligent CLV strategy enables businesses to improve marketing strategies to not only increase customer retention, but boost revenue.

    Understanding Customer Lifetime Value

    View Resource Understanding Customer Lifetime Value